Unpacking Payment Bundles

What Are Bundled Payments?

Bundled payments are the consolidation of payment for a continuum of health care services for a defined population with a specified diagnosis or clinical condition for a specific episode of care.² Bundled payment methodologies aim to strike a balance between fee-for-service and capitated payment models. They also seek to reduce the incentives of fee-for-service models when fragmented care has the potential to drive higher utilization and capitation or when incentives can drive a lack of services or underutilization that could jeopardize patient outcomes.

Bundled payment methodologies seek to increase care coordination, achieve greater efficiency in care delivery, and ensure high-quality care with the goal of improved patient outcomes at a lower cost. This approach to organizing payment and tying it to specific measures of performance is a system-level application of the value definition of outcomes per dollars spent.

Bundled payment methodologies have been part of the US health care system since the 1970s with the diagnostic-related groups (DRGs) that were developed by Yale University.² Case-rates, such as global surgery period-type payments or global obstetrical care payment, are another type of bundled payment methodology.³ These initial bundles did not align payment with patient outcomes, thus limiting their potential to create value for the health care system or to assess system performance.

In 2007, the Commonwealth Fund and Robert Wood Johnson Foundation sought to augment bundled payment methodologies with patient outcomes and incentives to better coordinate care, resulting in an innovative payment model called the PROMETHEUS model. This model packages payment around a comprehensive episode of care that covers all patient services related to a single illness or condition. Payment amounts are based on the resources required to provide care as recommended in well-accepted clinical guidelines.⁴ This generation of bundled payment combined the science of guidelines, evidence, and outcomes with economics by organizing resources utilized at a determined rate of payment.

Where Are Bundles Being Implemented?

In addition to innovative bundled payment models such as PROMETHEUS and initiatives by integrated health care systems and innovative commercial payers, Medicare has begun to initiate bundled payments through 2 programs authorized by the Patient Protection and Affordable Care Act.

The Bundled Payments for Care Improvement (BPCI) program^5,6 outlines 4 models of care in which payments for the health care services that beneficiaries receive during an episode of care are aggregated. Health care organizations agreeing to participate in this initiative enter into payment arrangements that include financial and performance accountability for episodes of care. The BPCI's payment structure is fee for service and has retrospective payment adjustments. The goal is to improve the quality and coordination of care and to do so at a lower cost to Medicare. These models offer the ability to pilot test different models and assess their characteristics for future development of bundled payment programs.

The Comprehensive Care for Joint Replacement Model (CJR)—which will begin on April 1, 2016, after the publication of a final rule on November 16, 2015—is mandatory for acute care hospitals that provide elective hip and knee replacements (MS-DRG 469 and 470) in 67 metropolitan statistical areas (MSAs). The CJR model would bundle the inpatient stay with all related health care services, such as physical therapy, for 90 days from discharge. Hospitals would be accountable for providing care, managing the coordination of care across nonhospital settings and providers, and meeting delineated quality standards. The model pays facilities and providers at the Medicare physician fee schedule rate for their services and then compares actual spending with spending targets for the episode. Managing the cost and quality of actual spending under the target would result in reconciliation payments to the hospital. Exceeding the target or not meeting quality thresholds would result in penalties to be paid. Hospitals can collaborate with rehabilitation professionals, including physical therapists, and facilities can share in the risk and reward.⁷

The development of bundled payments under Medicare signifies that these payment methodologies will be a part of the evolving payment landscape in which rehabilitation professionals must navigate to provide care and best serve their patients and the payer community. Rehabilitation professionals have a responsibility to advance these models by contributing to the design of care pathways, contributing to the teamwork that will drive care coordination, embracing standardized data collection and outcomes reporting, and providing good stewardship of labor and other financial resources.

Implications for Rehabilitation Professionals

The application of bundling will be limited to defined episodes of care and will not encompass the full spectrum of patient populations. The potential of bundling is primarily in diagnostic categories that are predictable and initiated by an event such as a specific injury, surgery, or procedure. Chronic conditions—from diabetes to low back pain—present complications for bundled payments but still need to be addressed with innovative payment reforms.

Rehabilitation professionals will be faced with managing multiple payment methodologies in the future, including bundled payments. Regardless of the percentage of payments that rehabilitation professionals have received via bundled methodologies, there are many implications that are applicable to other payment methodologies and that are advisable for tomorrow's practitioners.